Do you think that small business contracts and subcontracts have been going to contractors that do not qualify as small businesses? If so, you may be interested in the new legislative changes intended to discourage and penalize fraud in small business contracting. The changes are in the Small Business Jobs Act of 2010, signed by the President on September 27, 2010.

Section 1342 of the Act requires contractors to certify their small business size and status on an annual basis in ORCA, the federal On-Line Representations and Certifications Application. Contractor representations as to small business status already appear in FAR 52.219-1 and in ORCA, but new regulations can be expected. The Act requires the Small Business Administration to promulgate regulations to ensure that no business continues to be certified as a small business without fulfilling the requirements for this annual certification.

In addition to the annual certification, section 1341 of the Small Business Jobs Act imposes three new rules governing the certification process itself:

  • Detailed certification requirement. Every solicitation and bid for a small business contract or subcontract must contain "a certification that a business concern qualifies as a small business concern of the exact size and status claimed by the business concern." To be sufficient, the certification "shall contain the signature of an "authorized official on the same page."
  • Deemed certifications. Submitting a bid or proposal on a federal contract or subcontract or registering in a federal contractor database such as the Central Contractor Registration is deemed to be "affirmative, willful, and intentional."
  • Presumed loss to the United States. Under this section, the United States is presumed to lose "the amount expended on the contract" whenever a contractor willfully seeks and obtains a small business contract by misrepresentation.

Each of these new rules is calculated to simplify the Government's case in enforcing its rights under the False Claims Act. The presumption that the Government suffers a loss in the amount expended on an ill-gotten contract, for example, is important to the calculation of False Claims Act damages. A person that submits a false claim can be held liable for "3 times the amount of damages which the Government sustains," usually measured by the Government's actual loss. In many cases under the False Claims Act, there was a real question as to how the Government's actual loss should be quantified. Under the new Small Business Jobs Act, the amount of the actual loss will be "the amount expended under the contract."

It is important to note that these new rules are not aimed at contractors that make a mistake about their small business status or their eligibility for an SBA program. There is certainly some complexity to SBA's small business rules, and it would not be appropriate to expect perfection from every small business contractor every single time. This law is aimed at ineligible contractors that misrepresent their small business status in order to reap improper advantage of SBA programs. The costs of such misrepresentation has now gone up.